Food inflation dips .62% to 16.12%, but pressure on RBI stays

NEW DELHI: Food and fuel price inflation have soften marginally in early June but not to the levels that may ease pressure on the Central bank to raise bank rates.

Food price inflation for week ended June 5 was at 16.12% compared to 16.74% in the previous week. Similarly, fuel price inflation also dropped to 13.18% as against 14.23% in the previous week, as per a commerce ministry statement.

Expert fear that high food price inflation may have spiralling impact on overall inflation and expected the Reserve Bank of India (RBI) to announce policy measures to check money supply in the system.

Prime Minister's Economic Advisory Council chairman C Rangarajan said, "It can no longer be treated as purely food inflation. The manufacturing sector is also showing a reasonably high degree of inflation.

Therefore, some action on demand side (inflation) is called (for).... I think the question of taking some action in terms of tightening the policy has become imperative."

The country's chief statistician, Dr Pronab Sen says that he does not see inflation coming down in the next couple of months. "Food inflation has clearly spread to manufactured items," he told ET.

The RBI is under pressure to tighten its monetary stance before the policy review on July 27, as wholesale price index (WPI) inflation in May touched 10.16%.

A key RBI official on Thursday said inflation has not exceeded the central bank's estimates, but is definitely a cause of worry. "You see international situation is not that volatile, it has some adverse implications.

But I think more than that domestic inflation is definitely a matter of worry," said KC Chakraborty, deputy governor RBI.A liquidity crunch in domestic markets and the European crisis have made the central bank cautious about hiking key rates.

But as concerns that food inflation has now spread into a more generalised inflation, the government is expecting the RBI to take action.

Earlier this week, finance minister Pranab Mukherjee had expressed concerns over double-digit inflation and said the central bank would take measures to curb prices whenever required. Food prices may cool down in the next two months with the advent of a good monsoon, he had said.

The Indian Meteorological Office has predicted near normal monsoon this year, although it has been slow to advance since hitting the Indian coast in late May. Experts believe that food prices may moderate partially with the rains.

"Food prices may cool only marginally with the monsoon and will continue to be at about 10% because of the higher minimum support price for crops as well as higher input costs. With the high headline inflation, it may not be surprising if the RBI hikes the repo and reverse repo rates by as much as 50 basis points each in the review," said NR Bhanumurthy, an economist with NIPFP.

For the week under review, prices of fruits and vegetables fell by 6% and tea became cheaper by 2%. However, prices of urad rose 6% and that of maize, bajra and gram rose by 1% each.